Low-Credit Merchant Cash Advance
Bad Credit Advance
Summary
A low-credit merchant cash advance (similar to a business cash advance) is structured as a purchase of future credit card sales. It is different because it allows:
- those with bad credit to raise money
- companies with a limited operating history or low sales rate to raise money
What happens is a finance company will make an estimate of how the credit card sales of the small business will trend in the coming months, based on information you provide in your application. It will also consider other factors such as industry type and the size of a typical customer transaction in deciding whether to provide a low-credit merchant cash advance. Then, based on the credit card sales estimate and the risks assigned to these other factors, the merchant cash advance company will offer to pay cash up front for the purchase of a fraction of the small business' future credit card sales. The merchant will be required to switch credit card processors before receiving funds.
The Application Process
If you are interested in applying, initially you will be asked to supply the following:- Cash advance application
- Information disclosure letter
- Copy of a voided check
- Copy of a drivers license for each signature
- Proof of ownership (a document or documents that show the business owner name or names and percentage of business owned (examples include Articles of Incorporation, LLC Member Agreement, Tax Return Schedule, etc).
- Most recent business bank statements (all pages)
- Last 4 months credit card processing statements (or 12 for seasonal businesses) - all pages
- Credit card processing application
Review and Approval process
At this stage, underwriters will review your application package, verify the information provided, make estimates of future business trends, evaluate the risk of making a cash advance, and ultimately prepare one or more quotes. This process typically takes 24-48 hours, and depends mainly on the timely return of phone calls and faxes to various parties.
After review, the business owner(s) will be contacted and informed of the approval status. If approved, the various types of financing amounts and terms will be discussed. If the business owners are interested in proceeding, then final documents will be prepared.
The contract phase
Final documents will be sent to the business owners for signature. In these documents, it will explain how much money will be advance, how much will be paid back, what percent of the future credit cards sales are being purchased, among other details. Once returned, various back-end steps are set into motion. If documents are not sent back signed within a short period of time, this may result in a need to resubmit more up to date financials for re-review.The initial set up and payout phase
Typically within one business day, the business owner will be contacted by a credit card processing specialist to reprogram the credit card terminal or point of sale systems. For modern credit card terminals, this is a simple 5 to 10 minute process, where the specialist will step the business owner through the required keystrokes. In the case of a point of sale system, like those used in some restaurants, the owner will be sent written configuration parameters, and the owner will contact its POS reseller to get the reprogramming completed.At this point, the credit card processor's back-office systems will also be programmed to perform split processing (or split funding). The programming instructions, in layman's terms, can be described as follows: send x% to the merchant's bank account and 1-x% to the merchant cash advance company's bank account until the payback amount is reached.
Once terminal or point of sale programming is complete, the cash advance company is monitoring the credit card processing sytem to observe the batching process. Typically, after two to four successful batches are sent electronically from the merchant credit card terminal to the credit card processor, the cash advance company will authorize payout to the small business.Once the required successful batches are recorded, the merchant cash advance company will make a wire transfer to the business bank account indicated with information on the voided check that was requested during the application process. Typically at this stage, the cash advance company may deduct fees when applicable to account for underwriting, bank account openings, and such. These fees will be disclosed in the contracts signed during the contract phase.
Digg This! 
Save to del.icio.us 
Subscribe to Blog RSS
Bookmark This Page